ACT Chief Minister Andrew Barr has brushed aside concerns that the Albanese government's position on income tax could wipe out pay rises for public sector workers.
As his government negotiates a new pay deal with the territory's public servants - including teachers, who walked off the job on Friday - Mr Barr declined to back NSW Premier Chris Minns's criticism of federal Labor's failure to hand bigger tax cuts to income earners.
"The bigger picture is making sure we've got a fair tax system that funds the public services Australians depend on," Mr Barr said in comments to The Canberra Times.
"People aren't excessively penalised for earning more."
Mr Minns last week blasted Treasurer Jim Chalmers for declining to further address bracket creep, complaining his refusal to index income tax brackets to inflation reduced the value of historic pay increases awarded to NSW nurses, midwives and paramedics.
The territory's latest pay offer to its public sector employees is 3 per cent a year over three years, while the union is demanding 5, 4 and then 3 per cent.
If a deal is reached on the ACT government's terms, an experienced teacher (Level 8) currently on a salary of $129,106 would enter the second-highest marginal tax bracket in the second year.
A mid-level school psychologist (manager classification) on $180,384 would enter the top marginal tax rate in the second year.
Asked if he was concerned by this, Mr Barr said: "I understand the concern, but we shouldn't lose sight of the basics."
"You only pay the higher marginal rate on the extra income above the threshold, not on your whole salary," he said.
Mr Minns' comment that employees paying the highest marginal tax rate of 47 per cent were effectively working half the week for the tax man have been criticised for misrepresenting how Australia's progressive income tax system works.
Opposition Leader Angus Taylor unveiled a policy to index tax thresholds in his budget reply speech.
Mr Barr said he was confident in his government's ability to attract high-quality teachers to the ACT public education system, which he said was "one of the best in the country to work in."
"Pay and tax matter, but so do pedagogy, professional development and career opportunities," the chief minister said.
"We always keep an eye on real wages, but it's important to keep this in perspective.
"We have a progressive tax system, if you earn more, you contribute more. And that's how we fund the services people rely on every day, including the public sector itself."
He did not support leaving income tax thresholds unchanged, though, signalling support for potential future relief flagged by Dr Chalmers through the Working Australians Tax Offset (WATO), which will initially lift the tax-free threshold by $1785 to $19,985 from 1 July 2027.
"This is the sensible and flexible approach that allows governments to step in with targeted relief when needed, rather than locking in changes that can disproportionately benefit higher income earners," the chief minister said.
While bracket creep "should be managed," he said, "tax thresholds and rates are regularly adjusted."
"Flat tax rates, or increased tax thresholds, can be unfair because they shift more of the burden onto low and middle income earners while asking proportionally less from those with the greatest capacity to contribute.
"If we want stronger public services, including public education, they have to be paid for."
Mr Barr said Labor's tax cuts committed for the next two financial years would "support those who earn their income through work" and that the May 2026 budget had struck "the right balance, targeted cost-of-living relief while keeping the tax system fair."
"And importantly, they contribute to the revenue we need to invest in schools, hospitals, and other essential public services."
From July 1, 2027, the income tax rate for the $18,201 to $45,000 tax bracket will fall from 15 per cent to 14 per cent.
